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Econ 131 lecture 5

Econ 131 lecture 5 - TA Session and Quiz Next Week TA...

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TA Session and Quiz Next Week TA Session 10/12 6:30-7:30pm WLH 2005 Quiz on 10/13 -- a week from today First 25 minutes of class, short lecture afterward Study chapters 1-5, problem sets 1 and 2, and lecture material Professor Jacobsen’s office hours (Economics 223) Monday 10/10 4-5pm Tuesday 10/11 10-11am Kirti’s office hours Wednesday 10/12 5-6:20pm (Economics 125) Review Theory of externalities: The primary economic rationale for environmental policy Reduction in external damage Welfare gain with regulation =
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Last Class Is moving from Q M to Q* good for farmers? Meat eaters? The people with WTP for environmental quality? Is moving from Q M to Q* a Pareto improvement? Can we turn it into one with a transfer? Why or why not? Give an example of a transfer that would work (in terms of areas), and discuss its practicality
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Like many environmental policies, this is likely not a Pareto improvement -- some groups suffer But, there is more total surplus. So if we rearrange that surplus, we must be able to make everyone better off (and achieve Pareto improvement) The transfer here would involve taking some money away from producers (who gained) and people who value clean water and animal habitat (who also gained), and giving it to the meat eaters. Is this feasible? What if most people both value the environment (or the services it provides) and eat meat? Pareto Improvements, Possible? Translation to Costs and Benefits of Abatement In the externality figure we have marginal environmental damage (MD) for quantities of meat. How do we get back to the concepts from last class, marginal (environmental) benefits of pollution abatement? Cost-benefit analysis and the standard externality problem are directly connected
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Translation from Damage to Benefits of Abatement Assume some functional forms: MD = 1/ 2Q (where Q is pounds of meat, MD in $)
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